The Consumer Financial Protection Bureau (CFPB) has issued a notice of proposed rule-making that is intended to help prevent avoidable foreclosures as the emergency federal foreclosure protections expire.
The CFPB says nearly 3 million homeowners are behind on their mortgages due to the COVID-19 pandemic and ensuing economic crisis. The proposal seeks to ensure that both servicers and borrowers have the tools and time they need to work together to prevent avoidable foreclosures, recognizing that the expected surge of borrowers exiting forbearance in the fall will put mortgage servicers under strain.
“We must not lose sight of the dangers so many consumers still face,” says CFPB Acting Director Dave Uejio. “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up. Last week we warned that servicers need to be prepared for a high volume of borrowers exiting forbearance, and today we are proposing additional guardrails and tools for servicers as they navigate the coming months.”
The number of homeowners behind on their mortgage has doubled since the beginning of the pandemic: 6% of mortgages were delinquent as of December 2020. Industry data suggest that nearly 1.7 million borrowers will exit forbearance programs in September and the following months, with many of them a year or more behind on their mortgage payments.
The CFPB’s proposal would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after Dec. 31, 2021. The CFPB is seeking public input on that date, as well as whether there are more limited ways to achieve the same purpose.
For example, the CFPB is considering whether to permit earlier foreclosures if the servicer has taken certain steps to evaluate the borrower for loss mitigation or made efforts to contact an unresponsive borrower. This provision, like the rest of the proposal, would only apply to loans secured by a borrower’s principal residence.
The proposal would also permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application.
Normally, with certain exceptions, Regulation X requires servicers to review a borrower for all available options at once, which can mean borrowers have to submit more documents before a servicer can make a decision. Allowing this flexibility could allow servicers to get borrowers into an affordable mortgage payment faster, with less paperwork for both the servicer and the borrower. This provision would only be available for modifications that do not increase a borrower’s monthly payment and that extend the loan’s term by no more than 40 years from the modification’s effective date.
The CFPB also proposes temporary changes to certain required servicer communications to make sure that borrowers receive key information about their options at the appropriate time.
The agency is requesting comments be submitted before May 11. The notice of proposed rule-making is available here.